Shippers played waiting game during ILA negotiations

Thursday, October 04, 2012

The reaction of cargo owners toward an unresolved contract negotiation between longshoremen and maritime employers that could have led to a shutdown of East and Gulf coast container ports this week was more muted than their rhetoric suggested, according to executives at CEVA Logistics.
The International Longshoremen's Association and the U.S. Maritime Alliance, representing terminal operators and ocean carriers, two weeks ago agreed with the help of a federal mediator to a three-month contract extension, averting a work stoppage while talks on a new, master contract continue. The original contract was scheduled to expire on Sept. 30 and union officials had signaled their intent to go on strike.
Shippers, through many outlets, had expressed widespread nervousness about disruption to their supply chains if a strike or lockout halted cargo-handling activity at seaports in the Eastern half of the United States, with many openly talking about the possibility of rerouting cargo through ports on the West Coast or elsewhere.
The long lead time for ocean voyages would have required shippers to divert cargo weeks ahead of the contract deadline to ensure none of their shipments got stranded on a vessel anchored offshore or in a container yard, shippers.
But most shippers took a wait-and-see approach rather than acting on contingency plans as the deadline approached, hedging their bets that the upcoming presidential election would lead to a resolution and that any strike would be short lived, top CEVA managers said Monday during a breakfast meeting held to update reporters about the company in conjunction with the Council of Supply Chain Management Professionals' annual conference in Atlanta.
"We saw some small movements. We saw some contingency plans executed through Canada, but certainly not a widespread move," Matt Ryan, president of the Americas, said.
CEVA is a major global freight forwarder that managed the movement of more than 783,000 ocean shipping units around the world last year.
U.S. Transportation Secretary Ray LaHood told American Shipper following a keynote address Tuesday before The International Air Cargo Association's biannual forum, held concurrently at the Georgia World Congress Center, that the Obama administration didn't put any pressure on the ILA to compromise.
Unions have traditionally been strong supporters of the Democratic Party and rallied behind Obama during the 2008 campaign. A strike that would throw the fragile economy into chaos weeks before the Nov. 6 election would likely have been perceived negatively by voters.
LaHood said the union's decision to extend the contract likely had more to do with the realization that going on strike while millions of people are out of work would not be advantageous.
The primary step taken by most CEVA clients that shipped goods through East and Gulf coast ports was to reevaluate their inventory options and consider sourcing closer to home, Cynthia Cochovity, executive vice president for business development in the Americas region, said.
Larger, multinational companies in particular evaluated their overall inventory in their U.S. distribution centers as well as their roster of suppliers closer to the United States to make sure they could get necessary products while limiting the need for more expensive air freight, she said.
Some retailers also tried to protect themselves by entering into block space agreements with ocean carriers under which they committed to book a certain amount of space on vessels for a certain period of time in order to guarantee themselves capacity that might become scarce as other shippers also diverted shipments to unaffected ports, she said.
"People had to do something, but were very cautious about doing anything extreme," Cochovity said. "You could feel this year that some basics were in place. But there was really only so far they were going to go as far as the amount of resources put into that planning."
Disruptive events often trigger companies to rethink how their supply chains are set up, but it's a good business practice for shippers to sit down with their logistics providers on a regular basis to determine how to rebalance shipment flows to find cheaper, more efficient and less risky options, Chief Commercial Officer Inna Kuznetsova, said in a follow-up interview. - Eric Kulisch